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Financial Instruments | 3 Months Ended
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Mar. 23, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments | Financial Instruments We are exposed to market risks arising from adverse changes in: •commodity prices, affecting the cost of our raw materials and energy; •foreign exchange rates and currency restrictions; and •interest rates. There have been no material changes during the 12 weeks ended March 23, 2024 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our 2023 Form 10-K. Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2 (Moody’s Investors Service, Inc.) or A (S&P Global Ratings) and we have been placed on credit watch for possible downgrade or if our credit rating falls below either of these levels. The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of March 23, 2024 was $178 million. We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of March 23, 2024. The notional amounts of our financial instruments used to hedge the above risks as of March 23, 2024 and December 30, 2023 are as follows:
| Notional Amounts(a)
| 3/23/2024 |  | 12/30/2023
Commodity | $ | 1.5 |  |  | $ | 1.7 |
Foreign exchange | $ | 3.9 |  |  | $ | 3.8 |
Interest rate | $ | 1.3 |  |  | $ | 1.3 |
Net investment (b) | $ | 3.0 |  |  | $ | 3.0 |
(a)In billions. (b)The total notional amount of our net investment hedges consists of non-derivative debt instruments. As of March 23, 2024, approximately 12% of total debt, after the impact of the related interest rate derivative instruments, was subject to variable rates, compared to 9% as of December 30, 2023. Debt Securities Held-to-Maturity As of March 23, 2024, we had no investments in held-to-maturity debt securities. As of December 30, 2023, we had $309 million of investments in commercial paper held-to-maturity debt securities recorded in cash and cash equivalents. Held-to-maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are reported in earnings. As of December 30, 2023, gross unrecognized gains and losses and the allowance for expected credit losses were not material. Available-for-Sale There were no impairment charges related to investments in available-for-sale debt securities in both the 12 weeks ended March 23, 2024 and March 25, 2023. Related to our Level 3 (significant unobservable inputs) investment in Celsius Holdings, Inc. (Celsius), we recorded an unrealized gain of $691 million in other comprehensive income during the 12 weeks ended March 23, 2024. There were no Level 3 investments during the 12 weeks ended March 25, 2023. Recurring Fair Value Measurements The fair values of our financial assets and liabilities as of March 23, 2024 and December 30, 2023 are categorized as follows:
|  |  | 3/23/2024 |  | 12/30/2023
| Fair Value Hierarchy Levels(a) |  | Assets(a) |  | Liabilities(a) |  | Assets(a) |  | Liabilities(a)
Available-for-sale debt securities (b) | 2,3 |  | $ | 2,027 |  |  | $ | — |  |  | $ | 1,334 |  |  | $ | — |
Index funds (c) | 1 |  | $ | 303 |  |  | $ | — |  |  | $ | 292 |  |  | $ | — |
Prepaid forward contracts (d) | 2 |  | $ | 13 |  |  | $ | — |  |  | $ | 13 |  |  | $ | — |
Deferred compensation (e) | 2 |  | $ | — |  |  | $ | 491 |  |  | $ | — |  |  | $ | 477 |
Derivatives designated as cash flow hedging instruments: |  |  |  |  |  |  |  |  |
Foreign exchange (f) | 2 |  | $ | 9 |  |  | $ | 16 |  |  | $ | 3 |  |  | $ | 31 |
Interest rate (f) | 2 |  | — |  |  | 155 |  |  | 5 |  |  | 135 |
Commodity (g) | 2 |  | 4 |  |  | 26 |  |  | 10 |  |  | 24 |
|  |  | $ | 13 |  |  | $ | 197 |  |  | $ | 18 |  |  | $ | 190 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Foreign exchange (f) | 2 |  | $ | 8 |  |  | $ | 17 |  |  | $ | 33 |  |  | $ | 38 |
Commodity (g) | 2 |  | 7 |  |  | 7 |  |  | 5 |  |  | 13 |
|  |  | $ | 15 |  |  | $ | 24 |  |  | $ | 38 |  |  | $ | 51 |
Total derivatives at fair value (h) |  |  | $ | 28 |  |  | $ | 221 |  |  | $ | 56 |  |  | $ | 241 |
Total |  |  | $ | 2,371 |  |  | $ | 712 |  |  | $ | 1,695 |  |  | $ | 718 |
(a)Fair value hierarchy levels are categorized consistently by Level 1 (quoted prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 in both years. Unless otherwise noted, financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets. Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities. (b)Includes Level 2 assets of $180 million and Level 3 assets of $1,847 million as of March 23, 2024, and Level 2 assets of $178 million and Level 3 assets of $1,156 million as of December 30, 2023. As of March 23, 2024 and December 30, 2023, $2,027 million and $1,334 million were classified as other assets, respectively. The fair values of our Level 2 investments approximate the transaction price and any accrued returns, as well as the amortized cost. The fair value of our Level 3 investment in Celsius is estimated using probability-weighted discounted future cash flows based on a Monte Carlo simulation using significant unobservable inputs such as an 80% probability that a certain market-based condition will be met and an average estimated discount rate of 8.1% based on Celsius’ estimated synthetic credit rating. An increase in the probability that certain market-based conditions will be met or a decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability that certain market-based conditions will be met or an increase in the discount rate would result in a lower fair value measurement. (c)Based on the price of index funds. These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability. (d)Based primarily on the price of our common stock. (e)Based on the fair value of investments corresponding to employees’ investment elections. (f)Based on recently reported market transactions of spot and forward rates. (g)Primarily based on recently reported market transactions of swap arrangements. (h)Derivative assets and liabilities are presented on a gross basis on our balance sheet. Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on our balance sheet as of March 23, 2024 and December 30, 2023 were not material. Collateral received or posted against our asset or liability positions was not material. Exchange-traded commodity futures are cash-settled on a daily basis and, therefore, not included in the table. The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value (classified as Level 2 in the fair value hierarchy) due to their short-term maturity. The fair value of our debt obligations as of March 23, 2024 and December 30, 2023 was $42 billion and $41 billion, respectively, based upon prices of identical or similar instruments in the marketplace, which are considered Level 2 inputs. Losses/(gains) on our cash flow and net investment hedges are categorized as follows:
|  |  |  |  | 12 Weeks Ended
|  |  | Losses/(Gains) Recognized in Accumulated Other Comprehensive Loss |  | Losses/(Gains) Reclassified from Accumulated Other Comprehensive Loss into Income Statement(a)
|  |  |  |  | 3/23/2024 |  | 3/25/2023 |  | 3/23/2024 |  | 3/25/2023
Foreign exchange |  |  |  |  | $ | (14) |  |  | $ | 16 |  |  | $ | 9 |  |  | $ | 1 |
Interest rate |  |  |  |  | 25 |  |  | 11 |  |  | 24 |  |  | 3 |
Commodity |  |  |  |  | 39 |  |  | 65 |  |  | 21 |  |  | 9 |
Net investment |  |  |  |  | (52) |  |  | 37 |  |  | — |  |  | — |
Total |  |  |  |  | $ | (2) |  |  | $ | 129 |  |  | $ | 54 |  |  | $ | 13 |
(a)Foreign exchange derivative losses/(gains) are included in net revenue and cost of sales. Interest rate derivative losses/(gains) are included in selling, general and administrative expenses. Commodity derivative losses/(gains) are included in either cost of sales or selling, general and administrative expenses, depending on the underlying commodity. See Note 11 for further information. Based on current market conditions, we expect to reclassify net losses of $107 million related to our cash flow hedges from accumulated other comprehensive loss within common shareholders’ equity into net income during the next 12 months. Losses/(gains) recognized in the income statement related to our non-designated hedges are categorized as follows:
| 12 Weeks Ended
| 3/23/2024 |  | 3/25/2023
| Cost of sales |  | Selling, general and administrative expenses |  | Total |  | Cost of sales |  | Selling, general and administrative expenses |  | Total
Foreign exchange | $ | — |  |  | $ | 18 |  |  | $ | 18 |  |  | $ | (1) |  |  | $ | (5) |  |  | $ | (6) |
Commodity | (1) |  |  | (25) |  |  | (26) |  |  | 31 |  |  | 50 |  |  | 81 |
Total | $ | (1) |  |  | $ | (7) |  |  | $ | (8) |  |  | $ | 30 |  |  | $ | 45 |  |  | $ | 75 |

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